Washington may be in tight spot at next downturn

The 2019 legislative session was a busy one by any measure, with unprecedented challenges for Washington employers, and it led to dramatic growth in the state budget.

One of the bright spots was watching thousands of hairstylists and salon owners rally in Olympia like never before to tell lawmakers how proposals aimed at restricting independent contracting and other laws would hurt their business.

Hair salons and stylists support families and create jobs in every county. These professionals organized, lobbied and spoke up about how these bills would impact their ability to make a living. Lawmakers eventually pulled back these proposals in the face of relentless hard work by these small business owners.

Today, this group is a political force in its own right and aims to stay involved as independent contracting and other changes are studied by legislative committees in the interim. It’s a great example of what’s possible when Washington employers get involved in the democratic process and insist on being included.

Other family-owned firms voiced concerns over a proposed capital gains tax, which could have dashed their retirement dreams and made transferring the business to the next generation riskier and more expensive. That proposal did not pass this year, but will come up again.

Other bright spots: Lawmakers invested in special education and created new pathways to graduation to help address workforce shortage concerns. Both moves will help our state stay competitive.

But employers faced many challenges, including big tax increases.

In the final hours of the session, lawmakers passed a 20 percent surcharge on top of current business and occupation tax rates for service-related businesses like accounting, law, engineering and many medical providers.

This will increase costs for small businesses, from family-owned homebuilders to small town doctors, which will then be passed on to consumers.

There was another proposal to establish a low-carbon fuel standard, which would drive up the cost of fuel without generating revenue for roads and another seeking to establish a cap-and-trade system that would drive up the cost of energy. Those measures, like the capital gains tax, did not pass this year, but likely will return.

There’s also a new work group funded in the budget that will look at our state’s tax system, which many say is broken. Employers need to get involved in this conversation and remind legislators that while our system is not perfect, it is a factor in our state’s strong economy. The 5.7 percent gross domestic product growth in Washington last year led all 50 states.

That leads to the biggest concern coming out of the legislative session — the dramatic growth of the state budget.

State government will spend more than $52.8 billion over the next two years. This is an increase of about 18.3 percent over the previous two-year budget and one of the biggest increases in the last 25 years.

It’s true there are many competing demands for resources, but lawmakers had $5.6 billion more to work with, before raising taxes. Rather than look for cost savings, they chose to raise more than $1 billion in new taxes.

It’s a safe bet that most Washington families and small businesses did not increase their spending by 18.3 percent this year. This pace of expansion is unsustainable.

When the tax collections drop, that usually means painful budget cuts and more tax increases.

Lawmakers made progress on important issues this year, but it came at a high cost. As they work through the interim and prepare for the next budget, our hope is that lawmakers will tap the brakes and slow the growth in state spending.

Washington has enjoyed years of strong economic growth, but we need to be prepared for the next downturn.

Kris Johnson is president of the Association of Washington Business, the state’s chamber of commerce and manufacturers association.